I contributed $5500 to a Roth IRA in 2016. After a ETF transaction, which earned $83, I realized that I should do a backdoor Roth. I recharacterized the $5583 to a new traditional IRA account, then converted it back to Roth IRA. They all were done in 10 days. Now I received two 1099-R forms. Form one with Box1 $5583, Box2a $5583, Box7 02. Form two with Box1 $5583, Box2a 0, Box7 N.
In Desktop version of TurboTax, Federal Taxes > Deductions & Credits > I'll Choose What to Work On > Retirement and Investments > Traditional and Roth IRA Contributions, should I input $5500 contribution to Roth IRA and conversion $5583 to traditional IRA, as well as $5583 contribution to traditional IRA and recharacterization to Roth IRA? Or input only once? Either way, the system will tell me that there’s $83 excess contribution to Roth that I should withdraw and pay the penalty for the gain. Does that mean I should withdraw $83 to my pocket, or set aside $83 back to traditional IRA? How to pay the penalty on the gain of that $83 part?
Another problem is when I input these 1099-R forms at Federal Taxes > Wages & Income > I'll Choose What to Work On > Retirement Plans and Social Security > IRA, 401(k), Pension Plan Withdrawals (1099-R), the federal refund amount dropped significantly. I think that’s all about after-tax money and shouldn’t have much influence on refund amount. Did I do anything wrong?
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"should I input $5500 contribution to Roth IRA and conversion $5583 to traditional IRA"
No, you recharacterized only $5,500 (resulting in $5,583 being transferred). Indicate that you contributed $5,500 to a Roth IRA, then "switched or recharacterized" $5,500 to a traditional IRA. Enter no other traditional or Roth IRA contributions under Deductions & Credits.
Enter both Forms 1099-R as received. For the code 2 Form 1099-R, indicate that you converted the entire $5,583 to Roth.
There is no penalty (unless you are ineligible to make a $5,500 traditional IRA contribution).
This is great info, thanks for sharing.
Does the conversion itself also need to be part of the attached statement?
What about a previous rollover? I moved my Roth IRA to a different custodian before I realized I had to recharacterize :(
The explanation statement is only to explain the recharacterization. Roth conversions are self-explanatory, reported on Form 8606 Part II.
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